Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Globaltec Formation Berhad (KLSE:GLOTEC) so let's look a bit deeper.
What Is Return On Capital Employed (ROCE)?
Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested in its business. Analysts use this formula to calculate it for Globaltec Formation Berhad:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)
0.031 = RM11m ÷ (RM424m - RM72m) (Based on the trailing twelve months to December 2024).
Thus, Globaltec Formation Berhad has an ROCE of 3.1%. Ultimately, that's a low return and it under-performs the Electronic industry average of 12%.
Check out our latest analysis for Globaltec Formation Berhad
Historical performance is a great place to start when researching a stock so above you can see the gauge for Globaltec Formation Berhad's ROCE against it's prior returns. If you'd like to look at how Globaltec Formation Berhad has performed in the past in other metrics, you can view this free graph of Globaltec Formation Berhad's past earnings, revenue and cash flow.
The Trend Of ROCE
We're delighted to see that Globaltec Formation Berhad is reaping rewards from its investments and is now generating some pre-tax profits. About five years ago the company was generating losses but things have turned around because it's now earning 3.1% on its capital. In addition to that, Globaltec Formation Berhad is employing 22% more capital than previously which is expected of a company that's trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger.
Our Take On Globaltec Formation Berhad's ROCE
To the delight of most shareholders, Globaltec Formation Berhad has now broken into profitability. And investors seem to expect more of this going forward, since the stock has rewarded shareholders with a 53% return over the last five years. Therefore, we think it would be worth your time to check if these trends are going to continue.
